Data provider FE switches to clean share classes


FE will switch to clean share classes for its fund rating system, ahead of changes from the Investment Association later this year.

The data, research and ratings provider will switch the share class it uses for the basis of its FE Crown and FE Passive Crown ratings to the highest charging clean share class from 18 January.

Currently the primary share class used as the basis for ratings and sector rankings is the highest charging, including bundled share classes.

However, in February last year the Investment Association consulted on changes and determined a fairer system would base performance data on the clean share classes through which most investors access the fund.

FE data director Sam Walker says: “The historical premise for basing the rating on the highest charging share class, which has been in line with industry best practice and also the trade body, was to assure that all investors were getting a fair deal, and to ensure that all funds were being measured on the worst experience of any investor.

“Of course the limitation of this approach is that it fails to support investors looking to make new investments in clean share classes; we risk misleading people who want to conduct a like-for-like comparison on funds during their evaluation processes.”

Under the changes, asset managers can base a fund’s performance on just the history of the clean share class, or they can tack on the performance from the bundled share class.

Asset managers that had an existing institutional share class pre-RDR and converted it into an RDR share class for retail clients, rather than setting up a separate unbundled share class, could benefit from the move as they will have a longer track record for the clean share class.

The move could lead to a significant re-shuffling of sector rankings.

In its report on the issue, the Investment Association acknowledged: “Some firms may choose not to use simulated data as there is no regulatory requirement to provide simulated past performance, and that is their prerogative. This would, of course, affect the information used in comparison tables and may mean the primary share class has no performance record over longer periods and so miss out being ranked in those tables.”

FE has made the switch ahead of the Investment Association’s deadline of 18 April, with other data providers expected to make the change by April.

Morningstar and Lipper were not immediately available for comment.